George Osborne has described this morning's news from Moody's as a "reality check". The ratings agency has put Britain on "negative outlook" and this means that there's a 30% chance that Britain could follow America and lose its triple A status.

A few headline observations:

Moody's have altered Britain's status because of troubles in the €urozone but the UK has the wrong policy on the €uro. Britain cannot recover healthily until the €urozone is fixed. Unfortunately UK policy is to keep the €uro together, if necessary with another big injection of IMF and British taxpayers' cash. Recovery begins when nations like Greece leave the single currency.

George Osborne is correct to say that the Coalition's deficit reduction plan is the only thing saving Britain from a downgrade. Thanks to Ed Balls and Gordon Brown borrowing during the good years – and borrowing excessively to increase welfare payments rather than invest in infrastructure – we have one of the biggest deficits in the world.

Ed Balls sounded very cheery on the Today programme. He shouldn't. Without George Osborne's deficit reduction programme we would be borrowing more and international investors and ratings agencies would probably demand a higher return as a result. That would mean higher interest rates and higher interest rates are the last thing British business needs.

If George Osborne is doing the right thing on the deficit (and like most Tory members we wish he'd cut harder and faster and have avoided tax rises) he still lacks a competitiveness agenda. For every tax cut (eg corporation tax) there are bigger tax rises (VAT, CGT, bank levy). For every reduction in red tape (eg health and safety) more regulations are being imposed (eg the Agency Workers Directive). For every good initiative (planning reform) there's a bad one (big policy-induced increases in the cost of energy). ConservativeHome readers recently voted for their favourite growth measures. George Osborne should study that list carefully as he counts down to next month's Budget.

Osborne needs more streetwise arguments for cutting the deficit. The Chancellor has probably relied too much on arguments that basically amount to 'we need to cut borrowing in order to get the ratings agencies and international markets off our back'. Fair enough but there are perhaps more moving arguments. We need to pay off our debts so our kids aren't taxed to the high heaven and leave these shores for countries with easy tax rates. It's immoral to borrow today and get our grandkids to pay off our excess. US research found that “We have got to stop spending money we don’t have” was the most resonant.

Above all George Osborne needs to change the economic conversation. At the moment the big issue is bonuses, deknighting Fred Goodwin and taxing the wealthy to cut taxes on the poor. I strongly support rebalancing the tax system but this is not the economic conversation that Conservatives can win. Labour will always be more prepared than our party to bash-the-rich, increase taxes and redistribute. The only conversation/ debate we can win is one where the creation of jobs and wealth is the dominant topic. Osborne must be the Chancellor, Cameron must be the party leader and this Coalition must be the Government that takes the tough decisions to ensure we can compete with Germany, China and America. We are taking tough-ish decisions on the deficit but we're not taking tough decisions on competitiveness. We need to embrace tough decisions on airport capacity, red tape and taxation and shout from the rooftops that we are doing so. Osborne needs to be the man who says you can choose the easy, popular path to economic decline with Labour or the tough but ultimately rewarding path to prosperity with me. Our message to voters will be: You can choose Labour or you can choose the Rescue Party. I think we can win an election if that's the choice.